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Impacts of Two Tax Reforms on Inequality and Welfare in China

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  • Yangyang Shen
  • Shi Li
  • Xiaobing Wang

Abstract

This paper takes stock of the existing literature on taxation and presents a framework to evaluate the impacts of tax policy reforms from the perspectives of progressivity and social welfare. It applies this framework to examine two tax reforms in China and finds that (i) the abolition of the regressive agricultural tax in 2005 has significantly improved the social welfare of rural residents; (ii) the increase in the income tax thresholds in 2011 increased progressivity but reduced the overall income tax share of total taxation. When the majority of the taxpayers are in the lower tax bracket, progressivity has little real impact in improving income distribution.

Suggested Citation

  • Yangyang Shen & Shi Li & Xiaobing Wang, 2021. "Impacts of Two Tax Reforms on Inequality and Welfare in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(3), pages 104-134, May.
    • Handle: RePEc:bla:chinae:v:29:y:2021:i:3:p:104-134
    DOI: 10.1111/cwe.12377
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    References listed on IDEAS

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    5. Nanak Kakwani & Xiaobing Wang & Ning Xue & Peng Zhan, 2022. "Growth and Common Prosperity in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(1), pages 28-57, January.
    6. Peter Rangazas & Xiaobing Wang & Yuxiang Zou, 2022. "China's efficient urban bias," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 223-253, August.
    7. Björn Gustafsson & Yudan Zhang, 2022. "Self‐employment in Rural China: Its Development, Chara cteristics, and Relation to Income," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(1), pages 136-165, January.

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